Monthly Archive for April, 2018
The insured submitted a claim for property damage and business-income loss after Superstorm Sandy in 2012. Towards the end of the claim evaluation process, the insured sued for breach of contract. Roughly two years after filing its complaint, the insured moved for leave to amend, seeking to add a bad faith claim.
The Court ruled that the insured failed to demonstrate good cause to show it was entitled to amendment beyond the Court’s amendment deadline. Under the federal rules, parties must act diligently, and the insured failed to timely add the bad faith claim upon allegedly learning of new information.
In addition, the Court found that granting the motion to add a bad faith claim would be futile. New Jersey bad faith claims are subject to the “fairly debatable” standard, i.e., “if a claim is ‘fairly debatable,’ no liability in tort will arise.” Under that standard, a bad faith plaintiff must be able to establish bad faith on summary judgment as a matter of law. The Court ruled that because there was uncertainty with the material facts surrounding the claim, summary judgment would be precluded as a matter of law. Thus, the bad faith claim was futile, and the Court denied the insured’s motion to amend.
Date of Decision: April 20, 2018
Lasermaster International Inc. v. Netherlands Insurance Co., United States District Court, District of New Jersey, Civil Action No. 15-7614 (CCC), 2018 U.S. Dist. LEXIS 66520 (D.N.J. Apr. 20, 2018) (Clark, III, M.J.)
This case involved the duty of an insured to keep his UIM carrier informed in connection with the underlying tort litigation. By failing to give timely notice, the insured lost coverage.
In its opinion, the New Jersey Supreme Court stated:
“Our case law has routinely emphasized the importance of candor by insureds and the obligation to act in a forthright, open, and honest manner with their carriers throughout the entire process of their claim. See Longobardi v. Chubb Ins. Co. of N.J., 121 N.J. 530, 539, 582 A.2d 1257 (1990) (“[A]n insured’s commitment not to misrepresent material facts extends beyond the inception of the policy to a post-loss investigation.”) We have provided insureds “an incentive to tell the truth. It would dilute that incentive to allow an insured to gamble that a lie will turn out to be unimportant.” Id. at 541-42, 582 A.2d 1257, 582 A.2d 1257. Although this case arises in a different context, we seek to avoid rewarding insureds for omitting key details in a UIM claim.”
The insured lost coverage for his failure to notify the UIM insurer of the underlying claim and its progress. The court’s decision was “not rooted in [the insured’s] state of mind, but rather in his actions.” The Supreme Court adopted the Appellate Division dissenter’s approach on the issue: “If . . . the insured, regardless of his state of mind, fails to give the UIM carrier any notice of the UIM claim until after the final resolution of the underlying tort action, thereby causing the irretrievable loss of the carrier’s rights to subrogation and intervention before the carrier has ever learned of the existence of the claim, coverage is forfeited.” (Emphasis in original).
Thus, an insured breaches the insurance policy terms by a delay in giving notice until after an arbitration, high-low agreement or jury trial.
Date of Decision: April 11, 2018
In this complex coverage dispute, the insurer appealed two magistrate judge’s decisions to the district judge: (1) a 2017 opinion and order denying insurer’s motion to compel the insured’s production of privileged documents concerning the underlying lawsuits and settlements; and (2) a 2018 opinion and order denying the insurer’s motion to bifurcate and stay discovery regarding the insured’s bad faith counterclaim. The underlying litigation concerned occurrence-based policies that provided coverage for over two decades, and whether insurer has a duty of coverage regarding several class-actions and anti-trust actions brought against the insured after the policy period.
In affirming the magistrate’s 2017 order, the court held that the insurer failed to show how the privileged information was both relevant and material, and failed to show how it could not obtain this information through less intrusive means.
Regarding the 2018 bifurcation order, the insurer argued that “under New Jersey law ‘a policyholder should not be permitted to engage in discovery related to a bad faith claim until such time as it has established as a matter of law that it was entitled to coverage.’” The court rejected this argument, under Federal Rule 42 which governed in this federal action. The district judge held that the insurer failed to meet its burden of showing that bifurcating the bad faith claim would serve judicial economy and not prejudice the parties.
Date of Decision: April 12, 2018
Travelers Casualty & Surery Co. v. Becton Dickinson & Co., United States District Court, District of New Jersey, Civil Action No. 14-4410 (JMV), 2018 U.S. Dist. LEXIS 61853 (D.N.J. Apr. 12, 2018) (Vazquez, J.)
The insured submitted a claim after his home was lost in a fire. Allegedly suspicious circumstances—including that this was the insured’s second home to burn down in less than three years—prompted the insurer to assign the claim to its Special Investigations Unit. In his proof of loss, the insured submitted claims for a Louis Vuitton handbag and a pair of diamond earrings. The insured’s investigator learned the insured’s former fiancé had these items. The insurer consulted with legal counsel, who advised that the insured made a fraudulent material misrepresentation.
Subject to the specific facts at issue, Pennsylvania law allows an insurer to void the entire policy. The insurer filed a declaratory judgment action seeking an order that it owed no coverage to the insured, and the insured brought counterclaims. The insurer successfully moved for summary judgment on the bad faith counterclaims.
The Court ruled that no reasonable juror could find the insurer failed to conduct a reasonable investigation into the claim before denying the claim. Furthermore, the Court reasoned that no reasonable juror could find that insurer lacked a reasonable basis for its denial because the information produced in the insurer’s investigation contradicted the insured’s representations.
The Court stated, “[the insured] failed to present a scintilla of evidence to support his unfounded conjecture that [the insurer] knew of or recklessly disregarded its lack of a reasonable basis for its claim decision.”
Date of Decision: April 11, 2018
American National Property & Casualty Co. v. Felix, U. S. District Court for the Western District of Pennsylvania, Case No. 3:16-cv-147, 2018 U.S. Dist. LEXIS 61020 (W.D. Pa. April 11, 2018) (Gibson, J.)
Thanks to Dan Cummins of the Tort Talk Blog for bringing this case to our attention.
A hailstorm severely damaged the insured’s roof, and she submitted a claim to insurer. The insurer estimated replacement costs of $5,145.55. Under the terms of the policy, insurer subtracted $3,380.75 in depreciation (measured by Xactimate—depreciation software used in the insurance industry), and a $1,000 deductible, and remitted $764.80 to the insured. The insured then sued for breach of contract and bad faith.
After the litigation commenced, the insurer conducted a revised estimate and remitted a supplemental payment of $2,500.40 to the insured. The insurer moved for summary judgment on the bad faith claim. Reiterating the evidentiary standard to show bad faith, the Court stated the insured must “produce evidence ‘so clear, direct, weighty and convincing as to enable a clear conviction, without hesitation, about whether or not the defendants acted in bad faith.’” The insured alleged three ways insurer acted in bad faith: 1) it withheld excessive depreciation; 2) it improperly relied on the Xactimate software; and 3) the insurer’s five-month delay in remitting a supplemental payment.
The Court ruled on the following issues as follows:
-
The insured failed to show any evidence indicating that insurer’s depreciation calculation was erroneous;
-
The insurer had a reasonable basis to use the Xactimate software because such use is standard industry practice; and
-
The five-month delay does not evidence bad faith because it was attributable to further investigation by the insurer.
As a result, the Court granted the insurer’s motion for summary judgment on the bad faith claim.
Date of Decision: April 6, 2018
Sands v. State Farm Fire & Casualty Co., United States District Court, Eastern District of Pennsylvania, Civil Action No. 17-4160 (JFL), 2018 U.S. Dist. LEXIS 58637 (E.D. Pa. Apr. 6, 2018) (Leeson, Jr., J.)
The insured submitted a UIM claim to insurer following an auto accident. After an initial review of the evidence on the accident, and the insured’s medical records, the insurer offered $15,000 to settle the claim. Insurer later increased its offer to $20,000 then $25,000. The insurer’s final valuation was $28,000, but the insurer did not contact the insured about the final increased valuation because the insured unambiguously stated he would not settle for less than $50,000.
An arbitration panel awarded the insured $45,000, and he sued for bad faith. The insured argued the insurer acted in bad faith because its final settlement offer was only about 50% of the arbitration award, and because the insurer failed to notify him of the last increased $28,000 valuation.
The trial court awarded summary judgment to the insurer, holding these facts insufficient to prove the insurer’s offers lacked a reasonable basis. The court found the insurer’s “offers were not arbitrary low-ball offers but rather were the result of a considered analysis of the relevant information regarding [the] claim.”
In an unpublished decision, the Superior Court affirmed on the basis of the trial court’s well-reasoned opinion.
Dates of Decision: August 17, 2017 and April 4, 2018
Boleslavsky v. Travco Ins. Co., Court of Common Pleas of Philadelphia, October Term 2015, No. 886 (Aug. 17, 2017) (Anders, J.),
Affirmed by
Boleslavsky v. Travco Ins. Co., Pennsylvania Superior Court, No. 1227 EDA 2017, 2018 Pa. Super. Unpub. LEXIS 1065 (Pa. Super. Ct. April 4, 2018) (Gantman, McLaughlin, Platt, JJ.)
Sometimes, lengthy litigation is described as an odyssey, warranted or not. In the Berg v. Nationwide case, the litigation has gone on as long as the times covered in both the Odyssey and the Iliad; and this most recent decision may not be the final word in its history.
In this 2-1 decision, the Superior Court reversed the trials judge’s $21 Million bad faith award against the insurer, and directed judgment for the insurer.
The essence of the majority opinion is in its final paragraph: “The trial court engaged in a limited and highly selective analysis of the facts and drew the most malignant possible inferences from the facts it chose to consider. We do not believe our appellate standard of review, circumscribed as it is, requires or even permits us to affirm the trial court’s decision in this case. This is especially so given Plaintiffs’ burden of proving their case by clear and convincing evidence.”
By contrast, the dissenting opinion begins: “Because it is not this Court’s role to usurp the fact-finding power of the trial court by its own interpretation of the factual and testimonial evidence, I respectfully dissent from the Majority’s decision to remand this matter for judgment notwithstanding the verdict.”
Court History
This case started with damage to plaintiffs’ car in September of 1996. The first step on this long road was between treating the car as a total loss vs. repairing it. The expenses at issue were $25,000 for a total loss and approximately half that for repairs. Under the insurance contract at issue, the carrier had significant control over the repair process itself. The insurer chose repairs, and the struggle begins in earnest with the beleaguered history of those repairs, and the litigation born from it.
Suit was filed in January 1998. The matter was bifurcated for trial purposes. In 2004, the first phase went to a jury, on fraud, conspiracy, and consumer protection law claims (UTPCPL). The jury found for plaintiffs on the UTPCPL claim, and awarded $1,925 against the auto repair shop and $295 against the insurer. The second trial phase was before the judge only, on the issues of treble damages, and statutory bad faith, both non-jury decisions. In 2007, the trial judge ruled for the insurer on the Bergs’ bad faith claim.
They appealed, but in 2008, the Superior Court ruled that they had waived all issues on appeal by failing to serve the trial court with a copy of their Rule 1925(b) statement. In 2010, the Supreme Court reversed that ruling and remanded to the Superior Court.
In 2012, reviewing the appeal on the merits, the Superior Court reversed and remanded the 2007 trial court decision. As discussed in our May 2012 blog posting, among other things, the Superior Court concluded that the trial court failed to consider various claims handling issues during the course of repairs and thereafter, as well as failing to consider the violation of other statutes in determining bad faith. Moreover, while the trial court would not consider the $900,000 spent to date by the carrier in defending the action, the Superior Court said this could be considered as evidence of bad faithfocusing on the concept of claims handling, and tying the amount to the claims handling.
After remand, a non-jury trial was held in 2014, and the trial judge found substantial evidence of bad faith in the carrier’s conduct, awarding $18,000,000 in punitive damages and $3,000,000 in attorneys’ fees. Again, this decision is discussed in our 2014 blog post.
On April 9, 2018, a 2-1 majority reversed that judgment, and entered judgment for the insurer. The dissenter would have affirmed. We discuss the highlights below, and commend the reader to the attached opinions for the lengthy drill-down detail the majority exercised in reaching its decision, with some of the same in the dissent.
Highlights of the 2018 Majority Opinion
-
An appellate court can closely scrutinize the facts of record.
The most significant aspect of the majority opinion is its willingness to drill down into the factual record, and to put the trial judge’s factual findings and conclusions under very close analysis. The majority recognized that deference is due the trial court as trier of fact, but would not give deference where findings of fact were not supported in the record, and where conclusions about the factual record did not have the support of actual facts in the record. For the majority, hand-in-glove with the necessity for this oversight function is the heightened burden of proof in statutory bad faith cases, i.e., proof by clear and convincing evidence.
Specifically, the majority stated: “This Court will reverse a finding of bad faith where the trial court’s ‘critical factual findings are either unsupported by the record or do not rise to the level of bad faith.’” (emphasis in original). The majority added that the “[factfinder] may not be permitted to reach its verdict merely on the basis of speculation and conjecture, but there must be evidence upon which logically its conclusion may be based. Therefore, when a party who has the burden of proof relies upon circumstantial evidence and inferences reasonably deducible therefrom, such evidence, in order to prevail, must be adequate to establish the conclusion sought and must so preponderate in favor of that conclusion as to outweigh in the mind of the fact-finder any other evidence and reasonable inferences therefrom which are inconsistent therewith.”
After doing its own analysis of the same trial court findings of fact, the dissent replied that: “The majority vacates the judgment ‘because the record does not support many of the trial court’s critical findings of fact.’ …. In doing so, however, the Majority tacitly admits that other critical findings of the trial court are supported by clear and convincing evidence.” (Emphasis in original).
Again, we commend the reader to the attached majority opinion for its fact analysis, and the dissent’s analysis of the facts it concludes support affirming the trial court.
-
Discovery violations do not constitute bad faith litigation conduct.
As stated by the majority: “The trial court found that Appellant hid and refused to give discoverable material to Plaintiffs, never produced photographs of the Jeep taken during the appraisal process, and refused to produce [a] report until ordered to do so during discovery. To the extent the trial court based its finding of bad faith upon discovery violations, it committed clear error. While it is true that a finding of bad faith under section 8371 may be premised upon an insurer’s conduct occurring before, during or after litigation, … we have refused to recognize that an insurer’s discovery practices constitute grounds for a bad faith claim under section 8371, absent the use of discovery to conduct an improper investigation.”
The Bad Faith statute “is designed to provide a remedy for bad faith conduct by an insurer in its capacity as an insurer for breach of its fiduciary duty to an insured by virtue of the parties’ insurance policy and not as a legal adversary in a lawsuit filed against it by an insured. Discovery violations are governed under the exclusive provisions of the Pennsylvania Rules of Civil Procedure. Nonetheless, even when considering these issues, we still find no merit to them supporting a bad faith claim under section 8371 by clear and convincing evidence.”
The majority recognized, among other things, that while there was an unwarranted refusal to produce an unredacted claims log, because the redacted material included no “smoking gun” this did not go beyond a discovery dispute subject to sanctions under rules governing discovery. Thus, it could not be used as actionable bad faith conduct subject to statutory relief under section 8371.
-
There was no clear and convincing evidence of bad faith via a scorched earth policy, and the length of litigation alone is not evidence of bad faith.
The majority characterized the trial judge’s decision as improperly relying on an earlier Superior Court Opinion to establish a fact in the present case. The prior Opinion involved a ruling against the same insurer, but involved another party with a different dispute. That prior Opinion found the existence of a claim manual, in evidence in that case, material to its finding of bad faith because the manual directed bad faith practices. The Berg trial judge used that earlier Superior Court Opinion as a basis to include the same manual as part of the bad faith evidence in the Berg case.
On appeal, the Berg majority refused to permit this factual assumption about the existence of an internal manual directing bad faith coverage practices. Under the clear and convincing evidence standard, there had to be actual facts adduced in this case establishing the manual’s existence.
The majority further rejected the trial court’s using the length of the Berg litigation as evidence of bad faith. The majority had done some analysis rebutting that notion during its review of the record, and declined “further to conduct a detailed analysis of nearly two decades of highly contentious litigation and we note that the trial court did not do so in its findings. Plaintiffs had the right to prosecute their case zealously within the bounds of the law, just as Appellant had the right to defend itself if it believed its personnel did not act in bad faith. We cannot arbitrarily impose a limit on the time and resources an insurer spends in defending a bad faith action.”
-
Matters, and thoughts, not of record cannot be considered.
The majority observed the trial court opinion was over 100 pages, and “devoted substantial portions … to matters not of record.” The majority was “troubled by [the] failure to limit … analysis to the facts of this case and applicable law.” The majority gave a number of examples of passages that concerned them. Excerpts of these non-record conclusions, which the majority describes as the trial court having “offered its thoughts”, concerning the insurance industry are quoted from the trial court’s opinion.
We quote just the first example of these conclusions/thoughts that the majority found to be outside the record. “[W]hat [p]laintiff, and more importantly, what lawyer in his right mind will compete with a conglomerate insurance company if the insurance company can drag the case out 18 years and is willing to spend $3 million in defense expenses to keep the policyholder from getting just compensation under the contract. Its message is 1) that it is a defense minded carrier, 2) do not mess with us if you know what is good for you, 3) you cannot run with the big dogs, 4) there is no level playing field to be had in your case, 5) you cannot afford it and what client will pay thousands of dollars to fight the battle, 6) so we can get away with anything we want to, and 7) you cannot stop us.” The majority clearly found such language out of bounds.
The majority’s conclusion.
In its conclusion, the majority states, among other things: “We disagree with the Dissent’s assertion that we are substituting our own findings for those of the trial court. Rather, our review of the extensive record in this matter convinces us that the trial court’s findings are not supported by the facts of record and our citations to the certified record belie any assertion that we have improperly substituted our findings for the trial court’s. The law permits a finding of bad faith only on clear and convincing evidence. Clear and convincing evidence is evidence that is “so clear, direct, weighty, and convincing as to enable either a judge or jury to come to a clear conviction, without hesitancy, of the truth of the precise facts in issue.’ ….The trial court’s highly selective citation to a voluminous record plainly failed to meet that standard. Respectfully, we believe the Dissent, under the guise of strict adherence to the standard of review, makes the same error.”
Date of Decision: April 9, 2018
Berg v. Nationwide Mutual Insurance Company, Pennsylvania Superior Court, No. 713 MDA 2015, 2018 Pa. Super. LEXIS 317 (Pa. Super. Ct. April 9, 2018) (Stabile and Ott, JJ., with Stevens, J., dissenting)
After the Court granted the insurer’s earlier motion to dismiss the insured’s claim for breach of the covenant of good faith and fair dealing, without prejudice, the insured filed an amended complaint. The amended complaint is identical to the insured’s initial complaint except for seven added paragraphs. The insurer filed another motion to dismiss the bad faith claim.
The Court again granted the insurer’s motion to dismiss the bad faith claim without prejudice. “To state a claim . . ., [the insured] must present some facts indicating bad motive.” “[I]t is not enough, . . . to infer bad intentions from bad consequences.” The Court stated that some facts may exist to eventually support a finding of bad faith, and held that a dismissal with prejudice would therefore be inappropriate at this time.
Date of Decision: April 4, 2018
Adams v. Allstate Life Ins. Co., United States District Court, District of New Jersey, Civil Action No. 16-9465 (RBK), 2018 U.S. Dist. LEXIS 58093 (D.N.J. Apr. 4, 2018) (Kugler, J.)
This faulty workmanship case involves an insured-subcontractor which allegedly installed a faulty HVAC system in the underlying plaintiffs’ home. The insurer refused to defend the insured in the underlying action. The insured settled and assigned its claims against the insurer to the underlying plaintiffs. They brought breach of contract and bad faith claims. The insurer brought a declaratory judgment action, and the assignee counterclaimed for breach of contract and bad faith, among other things.
The court looked at existing Pennsylvania and Third Circuit precedent that “claims based on faulty workmanship do not constitute an ‘occurrence’” that could trigger coverage. The assignees cited several cases involving faulty workmanship that did trigger coverage. The court distinguished those cases as involving bodily injury claims and/or actively malfunctioning equipment likely to give rise to an accident, none of which was present here. The court concluded that because “bad faith claims cannot survive a determination that there was no duty to defend,” summary judgment must be entered for the insurer.
Date of Decision: March 30, 2018
State Farm Fire & Cas. Co. v. DTL Mech., LLC, Civil Action No. 17-01224 (GJP), 2018 U.S. Dist. LEXIS 54953 (E.D. Pa. Mar. 30, 2018) (Pappert, J.)
A large tree fell on the insured’s home, causing significant damage. Insurer retained an expert who estimated the total cost of repairs at nearly $120,000. After the insurer remitted this amount to the insured, the insured then retained another expert who estimated the repairs at nearly $290,000, citing allegedly necessary structural repairs.
The insurer argued that the second expert’s estimate related to improving the home rather than restoring it to its pre-damaged condition. The insurer’s expert conducted several additional inspections, and after submitting three additional reports over the course of two years, concluded that there remained no evidence of necessary larger structural repairs. The insured brought suit for bad faith and insurer moved for summary judgment.
The Court granted summary judgment in favor of the insurer, holding that its expert’s investigation was sufficiently thorough. The Court further held that “[t]he duty of good faith does not require [insurer] to adopt its insured’s position on the extent of damage, the ‘most economical approach’ to repair the home[,] or the value of a claim.”
Date of Decision: March 30, 2018
Aaron v. State Farm Fire & Cas. Co., Civil Action No. 17-2606 (GJP), 2018 U.S. Dist. LEXIS 54163 (E.D. Pa. Mar. 30, 2018) (Pappert, J.)
